Bank Deposits Surge as Lending Stays Muted

Pakistan’s banking sector recorded a substantial expansion in deposit mobilisation, with total deposits increasing by 23.6% on a year-on-year basis in December 2025 to Rs37.43 trillion, representing the second-highest annual growth on record. The increase was largely underpinned by a rise in remittances routed through formal banking channels and the government’s ongoing digitisation and documentation initiatives, as reflected in data released by the State Bank of Pakistan (SBP).

Deposits rose from Rs30.28 trillion in December 2024 and registered a 5.8% month-on-month increase. Market analysts linked the robust growth trajectory to a continued transition toward regulated inflows, enhanced compliance requirements, and wider adoption of digital payment mechanisms.

According to AKD Securities, the primary contributors to the deposit surge were higher remittance inflows through official channels and policy-driven documentation measures aimed at expanding the tax base and strengthening financial transparency.

Notwithstanding the strong deposit growth, private sector credit activity remained subdued. Total advances stood at Rs14.88 trillion in December, reflecting a 7.1% decline on a year-on-year basis, although lending recovered by 10.9% compared to November. Consequently, the advance-to-deposit ratio declined to 39.8% from 52.9% a year earlier, while improving marginally from 37.9% in the previous month.

Conversely, banks significantly increased their investment portfolios, with investments rising 30.1% year-on-year to Rs37.91 trillion and posting a 3.2% month-on-month gain. The investment-to-deposit ratio increased to 101.3% from 96.2% a year earlier, though it eased from 103.8% in November, signalling a continued preference for sovereign instruments over private lending.

These developments follow the SBP’s recent monetary policy decision to maintain the policy rate at 10.5%, alongside a reduction in the cash reserve requirement (CRR) to 5.0% from 6.0% on a fortnightly average basis and a lowering of the daily minimum maintenance requirement to 3.0% from 4.0%.

Brokerage assessments estimate that the CRR reduction may inject approximately Rs313 billion in additional liquidity into the banking system. However, analysts have cautioned that the measure may have a limited impact on private sector credit expansion, noting that the released liquidity represents only around 2.2% of total industry advances and that banks continue to rely on borrowings to finance investments in government securities.